sharpenu Posted July 25, 2003 Report Share Posted July 25, 2003 Last year, I fought with a bank who bought a loan from an OC. Through the validation process, they eventually backed down when I threatened suit under FDCPA, FCRA and state collection laws. They couldnt validate, so they backed down. I won, right?WRONG!!!They filed a 1099 C (report of cancelled debt) with the IRS, showing the "unpaid balance" as income! Now the IRS is after me for back taxes and penalties for the "undeclared income". According to the IRS, they don't have to prove anything, the burden of proof is on me, to prove I DON'T owe the taxes. The sticky part is, a tax attorney will cost more than the tax bill. So, I guess I have to pay it? Apparently, all a business has to do is file the 1099 and you owe. The IRS told me that you MUST owe the money, or how would the bank have gotten your SSN, address, etc.?I was ready to sue a year ago, and I guess I will have to now, unless I want to eat this tax bill. I will be including the $667 the IRS says I owe in the damages! Link to comment Share on other sites More sharing options...
LadynRed Posted July 25, 2003 Report Share Posted July 25, 2003 No tactic at all, the bank was within its legal rights to issue you a 1099-C for the debt that they 'forgave' you. Anything $600 or over of 'forgiven debt' must be reported as income for the tax year it is forgiven. You'd file an amended return and add that 'cancelled debt income' into your 1040.HOWEVER, if you can prove that you were INSOLVENT when the debt was forgiven, you don't have to pay the IRS a dime !! Proving insolvency isn't all that hard. If your debts and liabilities are greater than your assets, you're insolvent. I suggest you gather your records for that year and get whatever forms you need to file the claim of insolvency with the IRS soon.Here's the page from the IRS that explains this. Scroll down about a third of the way to find the heading "Debt Cancellation".http://www.irs.gov/formspubs/page/0,,id%3D104442,00.html Link to comment Share on other sites More sharing options...
sharpenu Posted July 26, 2003 Author Report Share Posted July 26, 2003 My point being that the debt isn't mine to begin with. That is why they cant validate. They apparently dont need to prove it is mine as far as the IRS is concerned. Link to comment Share on other sites More sharing options...
buzz-saw Posted July 26, 2003 Report Share Posted July 26, 2003 Last year, I fought with a bank who bought a loan from an OC. Through the validation process, they eventually backed down when I threatened suit under FDCPA, FCRA and state collection laws. They couldnt validate, so they backed down. I won, right?WRONG!!!They filed a 1099 C (report of cancelled debt) with the IRS, showing the "unpaid balance" as income! Now the IRS is after me for back taxes and penalties for the "undeclared income". According to the IRS, they don't have to prove anything, the burden of proof is on me, to prove I DON'T owe the taxes. The sticky part is, a tax attorney will cost more than the tax bill. So, I guess I have to pay it? Apparently, all a business has to do is file the 1099 and you owe. The IRS told me that you MUST owe the money, or how would the bank have gotten your SSN, address, etc.?I was ready to sue a year ago, and I guess I will have to now, unless I want to eat this tax bill. I will be including the $667 the IRS says I owe in the damages!The 1099-C thing is certainly legal, and you would incur tax liability as a result. However, a 1099-C is for canceled DEBT. If they were not able to validate (PROVE that said debt existed), then there was no debt FOR them to forgive. Hence, they are furnishing the IRS with erroneous information. Now, supposing they DID validate -- then yes, a debt would have existed and the 1099-C would have been the correct course of action.If I were you, I would be calling my attorney first thing Monday morning. If you can't afford one, then contact your local Bar Association or a nearby law school to see what's offered in pro bono (free) legal services. This case definitely requires an attorney; and based on what you said, I'm thinking you'll probably end up with a huge chunk of money (and the bank face some very serious regulatory sanctions). A federally-regulated institution knowingly furnishing erroneous information to the federal government is no small matter. Link to comment Share on other sites More sharing options...
cybercrusader Posted July 26, 2003 Report Share Posted July 26, 2003 My point being that the debt isn't mine to begin with. That is why they cant validate. They apparently dont need to prove it is mine as far as the IRS is concerned.Incorrect 1099's happen all the time!! If this debt isn't yours, I would send a CMRRR letter to the bank and demand a CORRECTED 1099-C with a ZERO balance on line 2. I would also send a CMRRR letter to the IRS explaining the whole situation and include any proof you may have of trying to negotiate with the bank. A letter from the bank saying they can't validate would be IDEAL! You may also want to mention to the IRS that the bank never sent you a COPY B - Debtor's Copy (there may be a negligence penalty for noncompliance and you'll alert them to the fact that it may have been a mistake). Yes, they DO need to prove it to the IRS! But the IRS isn't going to know it's NOT your debt unless YOU tell them. But don't explain it to a clerk on the phone. You need to send a letter to the address on any CP tax due notice may have gotten. If you want, you can make some more waves by contacting the IRS TAXPAYER ADVOCATE's OFFICE at 877-777-4778. They will help you resolve your issue for FREE. Link to comment Share on other sites More sharing options...
curlytop Posted July 26, 2003 Report Share Posted July 26, 2003 How do they determine in which year a debt was "forgiven"? Is it when it was charged off? Or.....? Link to comment Share on other sites More sharing options...
cybercrusader Posted July 26, 2003 Report Share Posted July 26, 2003 In simple terms, a discharge of indebtedness (any debt) for Federal tax purposes occurs in the year the debt is deemed worthless or no longer collectible. When a bank "charges off" a debt it doesn't automatically trigger the 1099-C reporting requirement. Charging off an account and discharge of indebtedness for IRS purposes (which requires the filing of 1099-C for discharges over $600) are two different things.However a bank is certainly within their rights to issue a 1099-C in the year of charge-off. Here's an analysis of the US tax code regarding discharge of indebtedness by financial instititions:There is a conclusive presumption of worthlessness with respect to loans charged off by taxpayers in accordance with orders from a governing regulatory agency, where the agency uses bad debt criteria similar to that under Code Section 166 and where the deduction is taken in the year of the ordered charge off. In the case of a bank supervised by federal or state authorities, the conformity method of accounting may be elected to determine when a debt becomes worthless, whereby a conclusive presumption of worthlessness applies to loans charged off, in whole or in part, for regulatory purposes if the charge-offs correspond to the bank's classification of the loans as loss assets under applicable regulatory standards. A bad debt deduction is allowed for the taxable year in which the debt is conclusively presumed to have become worthless. Reg. Section 1.166-2(d)(3). The IRS has ruled that charge-offs of loans or portions of loans pursuant to a board of directors' resolution authorizing such charge-offs only if required under applicable regulatory standards issued by its supervisory authority are sufficient to demonstrate classification of the loan or portions as loss assets subject to the conclusive presumption. Rev. Rul. 2001-59, 2001-51 I.R.B. 585. Link to comment Share on other sites More sharing options...
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